Reluctant Landlords Better Off Selling…Even at a Loss

Karen McIntyre and her 3-year-old son near the property she rents out in Pennsylvania.

Renting out a home is dicey proposition these days. In the Journal Thursday I spoke with a number of homeowners who were forced to move for a variety of reasons, but who have decided to rent out rather than sell their homes. Some couldn’t sell; others didn’t want to lower the asking price. For many, becoming landlords has been a losing proposition.

One reason: The glut of rental housing on the market. It seems counterintuitive, but some communities with depressed housing sales also have high rental vacancy rates and falling rents, particularly in areas where foreclosed homes and condos have been turned into rental property.

For one thing, just because fewer people are buying homes doesn’t automatically mean more people are renting in every area. “When you have a bad economy, you have consolidation of households and fewer households,” explains Mike Nelson, current president of the National Association of Residential Property Managers. “People move back with their parents and people who would have lived alone take in roommates, anything to reduce financial obligations. There might be more tenants, but there are fewer leases because they are getting together,” he says.

Then there’s the competition from investors who’ve been snapping up foreclosed properties at bargain prices and renting them out, too, prepared to wait far longer for prices to rebound – perhaps a decade or more if necessary. Because they purchased the houses so much more cheaply, they can afford to charge lower rents, often undercutting the individual owner of a pricey house.

That is why so many experts we interviewed are urging sellers to become more realistic about pricing their homes for sale in the first place, based on current market values, not what a neighbor received for his house a few years ago. They say that for many sellers, it’s a better course of action than relying on rental income to wait out the market.